Oil prices hit a two-month high on Monday as a result of the tightening of US crude market and the threat of sanctions against OPEC-member, Venezuela.
Brent crude futures traded at $52.90 per barrel, its highest since May 25, while West Texas Intermediate (WTI) rose by 16 cents to trade at $49.87 per barrel.
Oil prices have risen by 10 percent since the last meeting of members of the Organisation of the Petroleum Exporting Countries (OPEC) and other major producers, including Russia, where they discussed potential measures to further tighten oil markets.
“US inventories are showing massive drawdown, Saudi Arabia seems intent on playing its role as the world’s swing producer,” said Jeffrey Halley, analyst at futures brokerage, OANDA.
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“Impending sanctions on Venezuela by the US will almost certainly be oil price-supportive.”
The US is considering imposing sanctions on Venezuela’s vital oil sector in response to Sunday’s election of a constitutional super-body that Washington has denounced as a “sham” vote.
However, traders say the biggest price supporter is currently a tightening US oil market.
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“Strong increases in the price of oil … (were) fuelled in large part by the substantial drawdowns in US inventories over the past several weeks,” said William O’Loughlin, a an alyst at Rivkin Securities.
“A continuation of this trend could indicate the oil market is rebalancing thanks to the production cuts by OPEC and Russia.”
After rising by more than 10 percent since mid-2016, US oil production dropped by 0.2 percent to 9.41 million barrels per day (bpd) in the week to July 21.
Drilling for new US production is also slowing, with just 10 rigs added in July, the fewest since May 2016.
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The tighter market was also visible in the price curve, which shows backwardation in the front end.
Backwardation is a market condition in which prices for immediate delivery of a product are higher than those later on.
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